Setting Up and Electing Accounting Policies for Your Company

When setting up a company, there's often an overwhelming amount of tasks to tackle. Among those is establishing your accounting policy, a crucial component for ensuring your company's financial success. But fear not! Today we'll walk you through setting up your accounting policy and electing those policies. So grab your favorite beverage, and let's dive in!

Understand the Basics

Before we start, it's essential to familiarize yourself with some accounting basics. Accounting policies are the company's principles, rules, and procedures when preparing its financial statements. These policies ensure consistency, accuracy, and compliance with financial reporting standards. Common accounting policies include revenue recognition, inventory valuation, depreciation methods, and accounting for leases.

Choose Your Accounting Framework

In setting up your accounting policies, you must select a framework to guide your financial reporting. The Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS) are the two most common frameworks. Your choice will depend on your company's location, industry, and whether you plan to operate internationally. Research both frameworks and consult with accounting professionals to make an informed decision.

Pick Your Accounting Method

Now it's time to choose an accounting method: cash basis or accrual basis. In cash basis accounting, you record revenue when you receive payment and expenses when you pay them. Accrual basis accounting records revenue when it's earned and expenses when they're incurred. Consider your company's size, industry, and the complexity of your financial transactions when choosing an accounting method.

Define Your Specific Accounting Policies

With your framework and accounting method, it's time to define your company's specific accounting policies. First, review the guidelines provided by your chosen framework and consider the unique aspects of your business. Then, consult with accounting professionals and industry peers.

Document Your Policies

Once you've defined your accounting policies, it's crucial to document them in a comprehensive, easy-to-understand format. Your accounting policy documentation should include details about your chosen framework, accounting method, and specific policies related to revenue recognition, inventory valuation, and more. Proper documentation ensures consistency, accuracy, and compliance in your financial reporting. With gaapRT's Policy Hub you can maintain and share your accounting policies with your entire organization.

Train and Educate Your Team

Your accounting policies are only as effective as the people implementing them. Train your finance team on your chosen framework, accounting method, and specific procedures. Give them access to your documentation and encourage open communication to address questions or concerns.

Elect Your Accounting Policies

Now that you've set up your accounting policies, it's time to elect them officially. This process involves formally adopting and integrating your policies into your financial reporting processes. Ensure that your team understands and consistently follows your elected policies, and revisit them periodically to ensure they remain relevant and compliant.

Stay Up-to-Date and Adapt

Accounting standards and regulations can change over time, so staying informed and adapting your policies is essential. Regularly review updates to your chosen framework and make necessary policy adjustments. Continuously monitor your industry's best practices to keep your accounting policies current and effective.

Setting up and electing your company's accounting policies might seem like a daunting task, but by breaking it down into manageable steps and approaching it with confidence, you can conquer this challenge with ease. With a solid accounting policy foundation, you'll be well-equipped to navigate your company's financial journey and achieve lasting success. Sign up to request a demo to check out gaapRT's Accounting Advisor!